First Trust Global Wind Energy ETF (FAN - Get Rating) is the only global renewable energy ETF focusing on the wind industry. It seeks to replicate the investment results of the ISE Global Wind Energy Index. With assets under management (AUM) of $457.6 million, the ETF allocates roughly 60% of its weighting to ‘pure-plays’ in the wind industry and the remaining 40% to ‘diversified sector’ companies involved in the renewable energy industry.

Its top holdings include Siemens Gamesa Renewable Energy, S.A., which makes up 9.44% of the fund, Vestas Wind Systems A/S (VWS) with a 9.1% weighting, and Orsted (ORSTED) with an 8.43% weighting.

Investors’ interest in the wind energy space has been growing due to the decline in wind energy costs. According to Lazard, wind power was 71% cheaper in 2020 than in 2009. Owing to greater volatility in the energy space, it can be beneficial to invest in FAN instead of wind energy stocks to lower the risk.

FAN’s 80.7% gain over the past year is proof of investors’ interest in the wind energy sector. The fund closed Friday’s trading session at $25.96, after hitting its all-time high of $26.14. This impressive performance, along with investors’ optimism over the prospects of the industry under a Biden administration, has helped the ETF earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates FAN:

Trade Grade: A

FAN is currently trading above its 50-day and 200-day moving averages of $21.05 and $16.79, respectively, indicating an uptrend. Moreover, FAN has gained 24.1% over the past month, reflecting solid short-term bullishness.

The high cost of storing renewable energy was a major barrier in switching to renewable energy such as  wind energy. But thanks to the technological advancements, the costs have fallen markedly over the past few years. In fact, Lazard reported that getting energy from new wind turbines is now cheaper than getting energy from existing coal and gas.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, FAN is well positioned. The fund is currently trading just 0.7% below its 52-week high of $26.14.

FAN’s expense ratio of 0.62% is reasonable compared to the category average of 0.63%.

Peer Grade: A

FAN is currently ranked #11 out of 116 ETFs in the Global Equities ETFs group. Other popular ETFs in the global equities ETFs group are Vanguard Total World Stock Index ETF (VT), iShares MSCI ACWI Index Fund (ACWI), and iShares MSCI ACWI Low Carbon Target ETF (CRBN).

With an 80.7% return, FAN has comfortably beaten the returns of these popular ETFs over the past year. VT, ACWI, and CRBN have gained 17.3%, 17.2% and 17.7%, respectively, over the same period.

Industry Rank: B

The Global Equities ETFs group is ranked #22 of the 65 StockNews.com ETF categories. Most of these ETFs seek to provide investment results that correspond generally to the performance of an index that tracks securities of publicly traded companies in developed and emerging markets.

These ETFs offer exposure to the global equities with a solid diversification, which reduces the risk of betting on a particular stock.

Overall POWR Rating: A (Strong Buy)

FAN is rated “Strong Buy” due to its short- and long-term bullishness, and solid growth prospects, as determined by the four components of our overall POWR Rating.

Bottom Line

With the falling costs of renewable energies, particularly in the wind energy space, we think FAN has huge potential to gain in the upcoming months despite gaining 80.7% over the past year.

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FAN shares were trading at $25.48 per share on Monday afternoon, down $0.48 (-1.85%). Year-to-date, FAN has gained 9.36%, versus a 1.36% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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